From Graham Stephan.
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THE GOVERNMENT SHUTDOWN:
Since the shutdown delayed critical employment and economy reports (some for the first time in 12 years), the Federal Reserve is using alternative data to help guide how much – and how fast – they cut rates. Those reports are overwhelmingly showing that unemployment is increasing, layoffs are becoming more common, and lower rates may help stabilize the economy.
THE STOCK MARKET:
Despite pessimism, the stock market soared in 2025, up 30% from April lows and nearly doubling over five years (~15% annualized). Bank of America and Morgan Stanley expect another 8% rise in 2026 as profits grow and AI boosts productivity. However, Goldman Sachs forecasts just 3% annualized returns over the next decade, while JPMorgan sees 6%, warning that current gains are unsustainable. Historically, Fed rate cuts near market highs lead to 13% average gains within a year, but often brings volatility and 15–20% pullbacks. Crashes usually follow later, driven by underlying conditions, not the cuts themselves.
THE HOUSING MARKET:
Housing is finally showing early signs of cooling. Inventory is rising, and home sales are forecasted to jump nearly 10% in 2026 as mortgage rates trend lower and more listings hit the market. Nationally, prices have slipped about 0.1% month-over-month and 1.7% year-over-year, roughly a 2.3% real decline when adjusted for inflation. Even so, nearly 30% of buyers are still paying in cash, and the average down payment just hit a record $70,000. Most price cuts are happening between $350,000 and $500,000, while luxury sellers remain firm, waiting for the right buyer. About 15% of deals are now falling through, largely due to failed inspections. In short, the market is active but fragile, homes move fast if priced realistically, while overpricing often leads to sitting listings and falling expectations.
THE FEDERAL RESERVE:
As of this week, the Federal Reserve just cut interest rates again, marking the second consecutive rate cut and signaling that more are likely on the way. Markets now expect another 25–50 basis point cut on December 10th, with several more possible throughout 2026. The reasoning comes down to slowing hiring, rising job cuts tied to AI automation, and easing inflation concerns now that tariff-driven price pressures have faded. Powell’s term also ends in May 2026, meaning a Trump-appointed successor could push rates even lower. Beyond this, the Fed acknowledged growing risks to employment and hinted that quantitative tightening may be ending, meaning they could soon start injecting liquidity back into the system.
MY THOUGHTS:
The latest rate cut was no surprise. The Fed clearly sees slowing employment ahead and is acting early to soften the blow. Still, many are uneasy that rate cuts are happening while stocks, gold, and Bitcoin sit near all-time highs and the dollar weakens, raising fears that too much easy money could reignite inflation or fuel another asset bubble.
If inflation stays tame, cheaper borrowing could stabilize markets and support hiring, but the risk of overheating remains. Personally, I see this as the Fed trying to prevent cracks before they spread. That’s why gold and bonds are rallying and why $7 trillion in cash still waits on the sidelines.
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